9/20/17 was down another -$0.75 and the model projects that the component on yesterday's kill will dip between -0.70 and -1.00. That will go a long ways toward closing the "Gap" at which the VVVs settled discount to the component last night. I'm suspecting that a nearclosed "Gap" will cause traders to nudge the VVVs down a notch but the hog market is full of surpris
With their lower bids, packers were able to purchase 95.1% of the moving average daily purchases of total hogs and 98.7% on the index hogs. I am of the impression that producers are willing sellers but packers are really not wanting a lot more pork to have to peddle so they have slowed down the chain speed. The model projected that the kill this week in not keeping up with the rate hogs are being finished and that about 1,400 head of hogs have been added to the log-jam so far this week. This suggests to me that packers have a day to a day-and-a-half of hogs back-logged. That doesn't sound like much until you are on the selling side of the pork. Most consumers don't want another pork chop for supper when they have just finished one with a plate of mashed potatoes, gravy and the trimmings.
I don't know where the hog futures market is going but I do know that we are in the liquidation phase of the Hog Cycle and looking for the "Valley" in the CME Lean Hog Index. Yesterday's data seems to be telling us that we are not there yet. The cutout data may be telling us that demand has now stabilized except for bellies. They took another big hit. It tells us nothing about where demand is headed.
Will the storm problems in Florida and Texas dampen demand? And Mexico's earth quake? Mexico is our largest export market? Will China step in and carry off the excess pork at bargain-basement prices?
More questions than answers!
But I still feel compelled to stick with the short side of the VVVs and the ZZZs but the ZZZs have been trimming my sails.
The past two days I have moved of so many calendar spreads off my boat that I am needing to hike my prices on what I have left and "UP" my bids on some replacements.
Still talking hogs better than I trade them.
Best wishes,
dhm